Estée Lauder(US:EL)2025-05-01 12:30Financial Data and Key Metrics Changes - Organic sales declined by 9%, with a sequential improvement from a 4% decline in the second quarter to a 3% decline excluding Travel Retail [7][32] - Diluted earnings per share decreased by 33% to $0.65, which was better than anticipated [7][32] - Gross margin expanded by over 300 basis points, marking the fourth consecutive quarter of improvement [7][34] - Operating margin contracted by 270 basis points to 11.4%, influenced by increased consumer-facing spending [8][34] Business Line Data and Key Metrics Changes - Travel Retail experienced a significant decline of 28% organically, continuing to shrink as a percentage of the overall business [7][32] - The U.S., China, and Japan saw share gains, with Clinique, The Ordinary, and Bumble and Bumble driving gains in the U.S. [9][10] - Clinique gained share for eleven consecutive months through March, while La Mer and Estee Lauder fueled growth in China [10][11] Market Data and Key Metrics Changes - The company outperformed in key markets, gaining share in the U.S., China, and Japan, marking the first share gains in the U.S. in many years [9][10] - In China, share gains were achieved in three of the last four quarters, while Japan saw its fourth consecutive quarter of share gains [10][11] - Online organic sales grew in the fourth quarter, driven by strong performance on platforms like Amazon and TikTok [13][14] Company Strategy and Development Direction - The company is focused on its "Beauty Reimagine" strategic vision, aiming to transform its operating model to be leaner and more agile [6][32] - The five action plan priorities include accelerating consumer coverage, creating transformative innovation, boosting consumer-facing investment, fueling sustainable growth through efficiencies, and reimagining the way the company works [11][25] - The company is committed to restoring sustainable sales growth and achieving a solid double-digit adjusted operating margin over the next few years [6][32] Management's Comments on Operating Environment and Future Outlook - Management acknowledged elevated macroeconomic challenges but expressed confidence in returning to sales growth in fiscal 2026 [27][32] - The company expects continued pressure in the Travel Retail business but anticipates a moderation in organic sales decline outside of Travel Retail [27][44] - Management highlighted the importance of monitoring consumer sentiment, particularly in the U.S. and China, as it impacts inventory management and sales [27][44] Other Important Information - The company has approved initiatives to reduce over 2,600 net positions as part of its restructuring plan [25][36] - Capital expenditures were reduced by 44% compared to the previous year, reflecting a focus on optimizing capital expenditures [38] - The company is exploring additional PRGP savings and strategic pricing to mitigate potential impacts from tariffs [42][43] Q&A Session Summary Question: Inventory alignment across categories and geographies - Management noted significant progress in reducing inventory levels, particularly in Travel Retail, and emphasized ongoing monitoring of retail inventory [48][50] Question: FY 2026 planning assumptions and market trends - Management expressed confidence in returning to positive growth in FY 2026, citing market share gains in key markets and improvements in retail sales [58][60] Question: Tariff sourcing and mitigation strategies - Management indicated plans to reduce product sourced from China to below 10% by the end of the fiscal year, leveraging manufacturing capabilities in Japan and Europe [74][76] Question: PRGP savings expectations and reinvestment - Management confirmed they are on target for PRGP savings and are focused on creating efficiencies through outsourcing and procurement projects [86][90] Question: Sales growth outlook and tariff impacts - Management stated that while tariffs pose risks, they are confident in their ability to navigate these challenges and return to growth in FY 2026 [98][100]